Model Portfolios

A Long-Term Record of Outperformance

We've been publishing model portfolios since 1990, first through our retired No-Load Fund Analyst newsletter, and subsequently through AdvisorIntelligence.com. Our tactical asset allocation and active manager selection over these 28-plus years has led to solid outperformance across the original strategies.

In this report, we delve into the long-run performance and select risk metrics of our Balanced model (60% equity, 40% fixed-income) to provide an example to investment professionals evaluating our service.

A hypothetical investment of $10,000 in the tactical Balanced strategy at inception would have grown to $78,747 versus only $64,917 for its static strategic benchmark, through December 31, 2018.*

Risk Management

We've achieved this performance record while constructing the portfolios in a risk-conscious way. We manage each of our balanced profiles (from Defensive to Equity-Tilted) to a maximum 12-month downside loss threshold. We cannot guarantee our models won't violate our targets, but since inception the Balanced model has only delivered a 12-month loss greater than 10% during the depths of the global financial crisis, while its benchmark has done so in each of the last two bear markets:

Our tactical Balanced model has violated its target downside threshold (a 10% loss) in only 3.1% of rolling 12-month periods since inception (all during the global financial crisis, which was a multiple-standard-deviation event).

Meanwhile, its static benchmark has violated that same threshold in 4.6% of 12-month periods, during both the global financial crisis and after the TMT/dot-com bubble burst.

SELECT RISK METRICS

Standard Deviation Last Five Years

Standard Deviation Since Jan-1991

Sharpe Ratio
Last Five Years

Sharpe Ratio Since Jan-1991

% of Five-Year Periods Beating Benchmark

% of 10-Year Periods Beating Benchmark

Upside / Downside Capture

Worst 12-Month Return

% of 12-Month Periods Below Downside Risk Threshold (-10%)

Active Balanced

6.37%

8.92%

0.34

0.58

58.84%

75.12%

101% / 94%

-31.84%

3.08%

Strategic Benchmark*

6.69%

8.50%

0.54

0.53

-

-

-

-28.71%

4.62%

Source: Litman Gregory Analytics. Data as of 12/31/18.

Model portfolio returns reflect only theoretical returns and may differ significantly from results achieved for actual managed accounts. For example, model portfolio results may not reflect the impact that material economic and market factors might have had on AdvisorIntelligence decision-making if the AdvisorIntelligence research team were actually managing clients' funds. The model portfolio results portrayed reflect the reinvestment of distributions and the cost of fund expenses, but not the deduction of costs, including management fees, that would have been payable by the model portfolio if it were an actual account managed by AdvisorIntelligence.

Since 1991, unless otherwise stated. We did not report monthly returns during the first year of our models. Excluding 1990 does not materially change the long-term risk and return characteristics of our portfolios.

*Beginning in 2012, our model benchmarks were changed to reflect the following strategic allocations:

Defensive Balanced—consists of an 80% weighting to the Vanguard Total Bond Market Index, 10% weighting in the Vanguard 500 Index, 2% weighting in the iShares Russell 2000 ETF, 4% weighting in the Vanguard FTSE Developed Markets ETF, and 4% weighting in the Vanguard FTSE Emerging Markets ETF.

Conservative Balanced—consists of a 60% weighting in the Vanguard Total Bond Market Index, 20% weighting in the Vanguard 500 Index, 4% weighting in the iShares Russell 2000 ETF, 8% weighting in the Vanguard FTSE Developed Markets ETF, and 8% in the Vanguard FTSE Emerging Markets ETF.

Balanced—consists of a 40% weighting in the Vanguard Total Bond Market Index, 30% weighting in the Vanguard 500 Index, 6% weighting in the iShares Russell 2000 ETF, 12% weighting in the Vanguard FTSE Developed Markets ETF, and 12% in the Vanguard FTSE Emerging Markets ETF.

Equity-Tilted Balanced—consists of a 25% weighting in the Vanguard Total Bond Market Index, 37% weighting in the Vanguard 500 Index, 8% weighting in the iShares Russell 2000 ETF, 15% weighting in the Vanguard FTSE Developed Markets ETF, and 15% in the Vanguard FTSE Emerging Markets ETF.

Equity—consists of a 50% weighting in the Vanguard 500 Index, 10% weighting in the iShares Russell 2000 ETF, 20% weighting in the Vanguard FTSE Developed Markets ETF, and 20% in the Vanguard FTSE Emerging Markets ETF.

From June 30, 2003 – December 31, 2011, our strategic allocations were as follows:

Defensive Balanced—consisted of an 80% weighting in the Vanguard Total Bond Market Index, 14% weighting in the Vanguard 500 Index, 3% weighting in the iShares Russell 2000 ETF, and 3% weighting in the Vanguard Total Int'l Stock Index.

Conservative Balanced—consisted of a 60% weighting in the Vanguard Total Bond Market Index, 30% weighting in the Vanguard 500 Index, 5% weighting in the iShares Russell 2000 ETF, and 5% weighting in the Vanguard Total Int'l Stock Index.

Balanced—consisted of a 40% weighting in the Vanguard Total Bond Market Index, 40% weighting in the Vanguard 500 Index, 8% weighting in the iShares Russell 2000 ETF, and 12% weighting in the Vanguard Total Int'l Stock Index.

Equity-Tilted Balanced—consisted of a 25% weighting in the Vanguard Total Bond Market Index, 50% weighting in the Vanguard 500 Index, 10% weighting in the iShares Russell 2000 ETF, and 15% weighting in the Vanguard Total Int'l Stock Index.

Equity—consisted of 65% weighting in the Vanguard 500 Index, 15% weighting in the iShares Russell 2000 ETF, and 20% weighting in the Vanguard Total Int'l Stock Index

From January 1999 – June 30, 2003, our strategic allocations were as follows:

Defensive Balanced—consisted of an 80% weighting in the Vanguard Total Bond Market Index, 14% weighting in the Vanguard 500 Index, 3% weighting in the Vanguard Small Cap Index, and 3% weighting in the Vanguard Total Int'l Stock Index.

Conservative Balanced—consisted of a 60% weighting in the Vanguard Total Bond Market Index, 30% weighting in the Vanguard 500 Index, 5% weighting in the Vanguard Small Cap Index, and 5% weighting in the Vanguard Total Int'l Stock Index.

Balanced—consisted of a 40% weighting in the Vanguard Total Bond Market Index, 40% weighting in the Vanguard 500 Index, 8% weighting in the Vanguard Small Cap Index, and 12% weighting in the Vanguard Total Int'l Stock Index.

Equity-Tilted Balanced—consisted of a 25% weighting in the Vanguard Total Bond Market Index, 50% weighting in the Vanguard 500 Index, 10% weighting in the Vanguard Small Cap Index, and 15% weighting in the Vanguard Total Int'l Stock Index.

Equity—consisted of 65% weighting in the Vanguard 500 Index, 15% weighting in the Vanguard Small Cap Index, and 20% weighting in the Vanguard Total Int'l Stock Index

Prior to 1999, the Conservative Balanced and Balanced portfolios were benchmarked to our Global Balanced benchmark, which consisted of a 25% weighting in the Vanguard 500 Index Fund, a 25% weighting in the MSCI EAFE, and a 50% weighting in the Vanguard Total Bond Market Index Fund. The Equity-Tilted Balanced and Equity portfolios were benchmarked to our Global Equity benchmark prior to 1999, which was equally split between the MSCI EAFE and the Vanguard 500 Index Fund.

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